structured finance and hedging for oil&gas producers in africa sg cib commodities group 2 june...

Structured Finance and Hedging for Oil&Gas Producers in Africa

SG CIB Commodities Group2 June 2005

9TH AFRICA OIL & GAS, TRADE & FINANCE CONFERENCE

NOT AN OFFICIAL UNCTAD RECORD

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This presentation contains indicative terms for presentation and discussion purposes only and does not represent a commitment of Société Générale. The information set forth herein is believed to be reliable, but no representation is made as to its accuracy or its completeness. The information set forth herein is subject to change without notice.

Société Générale does not provide investment, trading, accounting, tax or legal advice. This information is made available to you based on our understanding that you have the knowledge and sophistication to appraise, and that you will, to the extent necessary, consult with your own advisors, to independently assess, the economic consequences, risks, terms, and conditions of the proposal and to independently determine the merits of the proposal.

Disclaimer

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Content

General Presentation

Case Study 1: One Shop – Two Products

Case Study 2: Indexed Loan Facility

Awards and Ranking

Contacts

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Awards and Ranking

Contacts

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Société Générale at a Glance

Key Figures :Total Assets : Euros 539 billion

Equity : Euros 18.6 billion

92,000 employees worldwide in 80 countries

Market capitalization : Euros 33.1 billion

Ratings : AA-, Aa2, AA- (S&P, Moody’s, Fitch)

3rd largest corporate and investment bank in the Euro Zone (Net Banking Income)

An Integrated Universal Bank

Established in 1864, Société Générale (“SG”) is a preeminent universal bank, with focus on three core areasRetail banking

Asset management and private banking

Corporate and investment banking

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Integrated Oil & Gas Approach

ProducerProducerTraderTrader

RefinerRefinerDistributorDistributor

ConsumerConsumerReserve Based Lending

Trade Finance

Equipment Finance

Project Finance

Structured Commodity Finance

Corporate Finance

OTC Trading

Exchange Traded Contracts

Physical Trading

Investment Products

Inventory Management

Fundamental & Technical Research

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International Oil&Gas Presence

Houston

Corporate Banking

Reserve based lending

Project finance

Investment Banking Services

Oil & Gas Derivatives futures

Los AngelesAsset Management

(TCW)

LondonProject Finance

Paris

Project FinanceCommodity FinanceCorporate Banking

Export Credits

Oil & Gas derivativesOil & Gas futures

(FIMAT)

M&AEquity Research

Acquisition FinanceEuro Capital Markets

Assets Management

MoscowM & A

Commodities Finance

BeijingCorporate Banking

AustraliaProject Finance

Corporate Banking

SingaporeCommodity FinanceCommodity Hedging

Hong-KongProject Finance

M & A

DubaiProject Finance

NY

Project finance

Oil & Gas Derivatives

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Awards and Ranking

Contacts

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Awards and Ranking

Contacts

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Case 1: One Shop - Two Products

Independent producer with a few assets located in a country considered as « high risk » for international rating agencies (« single B» range).

Strong corporate situationProved reserves in excess of 300Mbbl;

Experienced management;

Production in excess of 100,000 b/d;

Low upstream costs.

However, because of the underlying « country risk » perception of international creditors, the access to international debt finance remains limited to short-term export backed structures.

The company is cash rich but needs to be able for the coming years to:Lock-in a minimum value of cash flow, regardless of the price and

Dispose of available medium to long term credit lines,

In order to be in a position to consider attractive investment opportunities when they arise.

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SG CIB’s response was in the form of a committed credit line, available forCash advances;

Counterparty risk under hedging transactions with the bank (medium term swaps).

The available committed amount is determined on the basis of a borrowing base, i.e. the projection of free cash flow of the company, to be reviewed on a regular basis.

The tenor of the commitment is up to 5 years.

Hedging transactions are available for a notional volume in excess of 2 mio bbl and usually include a sub-limit (the “Threshold”) in USD terms for a maximum marked to market value for which the bank is committed.

The company has the flexibility to fix the Threshold within a given range. In fixing the Threshold below the top of the range, it makes additional capacity available for cash advances.

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The only requested security is the assignment of a contingent export contract.This contract provides for the export of a crude oil volume, which is sufficient to

repay the facility over a period of 18 months.

No delivery takes place under the contract unless the economic or political situation in the country of operations deteriorates significantly (“Trigger Events”).

Unless a Trigger Event occurs, the company is not obliged to allocate specified export sales to the repayment of the facility.

In other words, the facility remains unsecured, unless a Trigger Event occurs, upon which it turns into a pre-export financing scheme.

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Awards and Ranking

Contacts

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Awards and Ranking

Contacts

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Case 2: Indexed Loan Facility

Rationale behind the oil indexed Loan Facility To lower the facility burden when revenues of the user of the facility are shrinking

because of diminishing oil price (Oil producer case)

Indexation mechanism for producer is a positive relation between oil price evolution and debt payment

Positive pointsReassuring arguments for lenders possibly afraid of adverse market evolution

Logical mechanism in terms of financial communication

Initial loan coverage ratio is improved as cash flow volatility to oil prices is reduced thanks to indexation

Capped debt payment in case of favorable (up) oil prices

A Commodity producer wants to be in a position to reduce its financial expenses if the crude oil price decreases.

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SG CIB proposes an Indexed Loan Facility:Parameters of indexation mechanism are directly linked to characteristics of the

underlying loan

The borrower will repay facility depending on the evolution of the brent IPE

This amount can be reduced down to zero and is anyhow capped on the upside

The indexation can apply to both Principal and Interests.

The proposed structure involves the embedding of a crude oil derivative instrument within the bank loan.

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For example sake the following underlying loan facility is considered : Facility Amount: USD100,000,000

Grace Period: 3 months

Tenor: 4 years

Interest Rate: 6% pa.

Total Financial expenses (P+I): USD112,000,000.

Start date : jan 06

Indexation apply to 50% of the Facility Amount

Interest 100% indexed

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Mechanism of the indexation Underlying : Brent IPE

Quarterly : to match quarterly installments and interests payments

Levels of indexation If the quarterly average of Brent IPE is below 28$/b

Indexed part of nominal to be repaid : 0

Interests to be paid : 0

Total (I+P) : 50M USD

If the quarterly average of Brent IPE is from 28$/b to 38$/b,

Indexed part of nominal to be repaid : from 0 (28$/b) to 50 M USD (38$/b)

Interests to be paid : from 0 (28$/b) to 12 M USD (38$/b)

Total (I+P) : from 50 M USD (28$/b) to 112M USD (38$/b)

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Levels of indexation If the quarterly average of Brent IPE is from 38$/b to 53$/b,

Indexed part of nominal to be repaid : 50 M USD

Interests to be paid : 12 M USD (38$/b)

Total (I+P) : 112M USD

If the quarterly average of Brent IPE is from 53$/b to 58$/b,

Indexed part of nominal to be repaid : from 50 M USD (53$/b) to 75 MUSD (58$/b)

Interests to be paid : from 12 M USD (53$/b) to 18 M USD (58$/b)

Total (I+P) : from 112M USD (53$/b) to 143 MUSD (58$/b)

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40 000 000

60 000 000

80 000 000

100 000 000

120 000 000

140 000 000

160 000 000

25 28 31 34 37 40 43 46 49 52 55 58 $/b

USD

Indexed debt serviceLoan AmountUnindexed Total Debt service

50% Nominal non indexed

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Awards and Ranking

Contacts

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Awards and Ranking

Contacts

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Trading Awards

Energy/Commodity House of the Year - 2004Energy/Commodity House of the Year - 2003

Crude Oil House of the Year - 2004Oil Products House of the Year - 2003

N° 1 : Fuel Oil - Swap Singapore

N° 3 : Fuel Oil - Options

N° 3 : Gasoline - Options Europe

N° 1 : Gold - Forward/Averages/Swap to five years

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Financing Awards

Each year Trade Finance magazine ranks the international banks active in structured commodity finance.In 2003, 2004 and 2005 SGCIB was ranked number 1.

SGCIB was also elected: Best Energy & Commodity Finance (Global Finance magazine).

Best Trade Finance and Highly Commended Commodity Bank (Global Finance magazine).

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Awards and Ranking

Contacts

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Awards and Ranking

Contacts

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Web Site

Commodities Capital Market : Commodities Capital Market :

www.commodities.sgcib.comwww.commodities.sgcib.com

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Contacts

Christophe Roux, Managing Director, Structured Commodity Finance, Oil&GasTel: 33 1 5898 1601Mob: 33 6 0918 1562E-mail: [email protected]

Nathalie MorichonDirector, Energy Derivatives marketing, Oil&GasTel : + 33 1 42 13 44 07Mob : + 33 6 85 81 45 55 E-mail : [email protected]

Cédric ViviantVice President, Commodities and Trade Finance, Oil&GasTel : + 33 1 41 45 97 36E-mail : [email protected]

structured finance and hedging for oil&gas producers in africa sg cib commodities group 2 june...

Documents

productscase study

indexed loan facilityawards

africa oil gas

socit gnrale sg

commitment of socit

investment bankingconfidential

preeminent universal

oilgas producers